Uber cuts the price of a ride in New York City by 20%, and the quantity of rides demanded rises by 40%. The absolute value of the price elasticity of demand for Uber rides is _____, and the price elasticity of demand for Uber rides is _____.
A)0.5; elastic
B)0.5; inelastic
C)2; elastic
D)2; inelastic

Question

Quizplus · Accepted Answer

Price Elasticity of Demand (PED) = % change in quantity demanded / % change in price

In this case, the quantity demanded of Uber rides has increased by 40% (which we assume to be the percentage change in quantity demanded) as a result of a 20% decrease in price.

Using the formula for PED, we get:

PED = 40% / (-20%) = -2

Because the absolute value of PED is greater than 1, we say that demand for Uber rides is elastic. Therefore, a decrease in price led to a proportionally larger increase in quantity demanded. Answer choice C is the correct answer.

Uber Cuts the Price of a Ride in New York